The US dollar is mostly weaker today. It appears to be consolidating the gains scored since the reversal on May 3. Sterling and the Australian dollar are leading the way early in Europe.  

The Australian dollar’s gains appear more intuitively clear. The minutes from the recent RBA meeting indicated that it was a closer decision.  This means that a follow-up rate cut next month is unlikely, which is what we have argued.  While short-term participants may be surprised today, the medium-term outlook has not changed. It seems likely that the RBA may still need to ease monetary policy.  

The resilience of the Australian dollar yesterday despite the disappointing data from China, and the follow through gains today, is notable. If it is sustained, it is likely signaling the end of this leg up in the US dollar, which began in late-April against the Aussie and May 3 for most of the others. The Australian dollar’s upside momentum eased in the European morning, so the key to the outlook may be the shape and magnitude of the pullback. Ideally, the Aussie holds above the $0.7280-$0.7320 band.   

We have argued that the place to look for investor anxiety about the UK referendum is not the spot market but the options market. At the start of next week, it is a month away. The one-month volatility and risk-reversal will replace the two-month tenor as the indication of the cost of insurance. More polls were out, and the one that has captured the market’s attention sponsored by the Telegraph that found a seven-point swing toward the “Remain” camp over the past month. That puts the status quo in a 55-40 lead.  

Some press accounts attributes sterling gains to this poll, but this seems a bit selective use of evidence. The ICM conducted two surveys one by telephone and one online. This produced conflicting results. By telephone “Remain” was ahead 47-39. Online participants gave Brexit the lead 47-43.